updated 11:43 am EDT, Fri June 8, 2012

Claims agency pricing a boon to industry

Bookseller Barnes & Noble has sent a complaint to the US Department of Justice regarding a proposed settlement in the latter's case against e-book price fixing, says paidContent. The DOJ has proposed a settlement with publishers HarperCollins, Hachette, and Simon & Schuster, who were all accused of colluding to keep e-book prices artificially high by moving to an agency model. In its complaint, B&N claims that the settlement "represents an unprecedented effort" by the DOJ to become "a regulator of a nascent technology that it little understands," and that e-book and hardcover prices have actually fallen under the agency system.

"You're going to end up having choice control from a server farm in Washington state," Barnes & Noble general counsel Gene DeFelice tellspC. The statement is a reference to Amazon, which the agency model was a reaction to. Amazon's Kindle e-books are often seen as having set the pricing bar unusually low; around the time Apple's iBookstore was launched, however, publishers began switching to the agency model, and Apple is moreover accused of insisting that any title sold at its store cannot be sold for less elsewhere.

"In essence, the proposed settlement substitutes one alleged cartel for a new cartel on the industry, albeit one run by the [DOJ]," DeFelice continues. Barnes & Noble is one of number of parties that have complained to the DOJ during a settlement commenting period, although the proposal has also received letters of support.

Barnes & Noble's complaint states that the proposed settlement "warrants an exacting review because of its potential impact on the national economy and culture, including the future of copyrighted expression and bookselling in general, not only electronic books." The company adds that "many millions of Americans, as well as all levels of the distribution chain for books (from authors to publishers to distributors, and especially brick-and-mortar stores), stand to be affected by this case's resolution."

The government's offer is "analogous to a cartel imposing a detailed business model on publishers," the vendor alleges. It would supposedly "injure innocent third parties, including Barnes & Noble, independent bookstores, authors, and non-defendant publishers; hurt competition in an emerging industry; and ultimately harm consumers."

In detail, the vendor says that "if the aim here is to end collusion, the proposed settlement should enjoin collusion and punish the purported colluders," instead of requiring them to "terminate their current agency agreements and then forbidding those same parties from entering legal agency agreements" for two years.

Barnes & Noble notes that the Tunney Act "requires a court to reject a proposed final judgment that is not in the 'public interest,'" as well as "present some factual basis for the proposed settlement remedies." The retailer says it doesn't want the DOJ to "prevent Barnes & Noble from agreeing with individual publishers on a business model that is the product of bilateral good faith negotiations that both parties agree are in their best interests."

The company acknowledges that agency pricing was "a result of Amazon's pricing (which priced most bestselling books sold by Barnes & Noble below Barnes & Noble's, and Amazon's, direct costs), Barnes & Noble was losing substantial money in an effort to compete with Amazon's pricing, and was unable to gain significant market share." It nevertheless claims that the switch to the agency model has not only lowered book prices, but increased competition.

"Agency has encouraged new participants to invest in e-books," it says, making references to its own Nook tablets, PubIt! self-publishing program, and lending and Read-in-Store initiatives. This "led to Amazon responding with improved e-readers of its own." Rejecting the agency system would "harm Barnes & Noble and other brick-and-mortar e-book distributors by leaving them where they were two years ago: a dominant player will set uncompetitive prices that all other potential competitors must meet to compete," and the vendor suggests that many e-book distributors could have to abandon the market, while the public would be left with "limited choice in where they buy their books: online retailers such as Amazon or large, multipurpose brick-and-mortar stores such as Costco, Wal-Mart, and Target, which offer only mass-market selections."